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Having a net worth of $1 million, or maybe even $2 million, does not give you entry into such a small exceptional group as used to be the case.  By some estimates, between 5 and 6 million American households have a net worth of at least $2 million.  This means that currently there are considerably more people who should consider how best to shield their money from the IRS and pass it on to their heirs, assuming that is their wish.  One such strategy that just became more attractive, due to new federal legislation, is the making of gifts during one’s lifetime.

Among the significant pieces of the new federal tax law that was passed in December 2010 were very substantial, albeit temporary, increases in the lifetime gift tax exemptions for individuals and couples.  For 2011 and 2012, these exemptions have increased five-fold, from $1 million to $5 million for individuals, and from $2 million to $10 million for couples.  There will be no gift tax imposed on gifts that do not exceed those totals.  The same law reduces the tax rate for gifts above the exemptions to 35% from a scheduled rate of 55%, thus benefitting individuals wealthy enough to make gifts that exceed the exemption levels.

Last year, Congress also raised the exemption for federal estate taxes to $5 million, and lowered the estate tax rate to 35%, also for a two-year period, so that, taken together, the new federal estate and gift tax rates are more favorable for taxpayers than they have been for approximately 80 years.

This is an area of the law for which sophisticated professional help is especially appropriate, but there are some general considerations to bear in mind when devising a plan for gift-giving.  For example, making a gift now, tax-free, makes good sense, especially for assets that are appreciating rapidly, so that future appreciation can be shielded from taxes.  It is conceivable that Congress in the future could “claw back” gifts that are greater than the exemption at the time the donor dies, but, even in that event, any income or appreciation occurring after the gift date should be tax-exempt.

Other considerations for giving are more emotional than legal.  Financial considerations aside, it may be a high priority for you to make sure that assets with sentimental value are preserved for future descendants, such as by putting them into a trust.  Or gift-giving decisions may entail weighing some remorse over parting with assets that took so long to acquire against the desire to improve the lot of those receiving the gifts.  Of course, a contrarian view might see large gifts as mainly abdicating control and risking having everything squandered. In any case, if these considerations are all reconciled in favor of making major gifts, now may well be the time to take the plunge.

I hope this review of the new federal tax law passed in 2010 has made it clear that everyone should do some planning.  If you have a Will and have not reviewed it in awhile, then now is the time because the tax laws have changed and all Wills are not created equal.  Your old Will may be outdated.  You should consult an attorney to review your estate and draft the best document for you. Spending a little now can save a great deal of expense and aggravation for you family later.

If you have a question regarding Elder Law, Estate Planning, Living Trusts or Probate in the Huntsville area, please contact us at 936-295-6394 or visit our website. Call today and we will connect you with an experienced Elder Law and Probate Attorney. We can schedule you a face to face appointment to discuss your circumstances. If you have questions or are considering any aspect of your estate plan, probate, your health care directives, etc. we can help! Call us now at 936-295-6394 . We look forward to hearing from you and assisting you with any and all elder law and estate planning needs.


Sam A. Moak is and attorney with the Huntsville law firm of Moak & Moak, P.C. He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas.


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